ET Now
In an interview with ET Now, Swati Kulkarni, Executive Vice President & Fund Manager, UTI Asset Management Company, shares her views on the market. Excerpts:
ET Now: There has been a good recovery in the market after a damaging last week. Do you think that a larger move for the market is in place, or is this just a temporary blip up?
Swati Kulkarni: It is difficult as always to comment on a single-day movement as such, but we are constructive on the market from a long-term perspective. A lot of things are happening in terms of decision making on the ground.
Moreover the cyclical recovery that is there is driving the market. The other thing is that global liquidity is quite benign and that is also resulting into a worldwide upward movement in the equity markets as such. So we are in for good times and that is what the market is reflecting, notwithstanding the volatility on a day-to-day basis.
ET Now: Do you think that the budget disappointment or the budget event adjustment is over now?
Swati Kulkarni: We give a lot of importance to the Budget as an event. However, if you see the way things have happened in the last two years or so, there have been important announcements outside the Budget. So it is unfair to just look at one particular piece of document and comment on the overall policy environment in the country.
Also, fiscal constraints that we are going to have because of the last two years’ slow growth would also prevail on the budget-related provisions as such.
The market is recognising these and it will really look for clues as to how the key policy decisions, reforms or the impediments which are affecting the overall investment environment are taken care of during the course of the year. That is what will be required to take us to a higher growth trajectory and that is what the market will focus on.
ET Now: How should one sectorally allocate oneself between cyclicals and defensives because again, there is a whole lot of shuffle happening there?
Swati Kulkarni: Clearly, the preference for cyclicals should be there in the portfolio because, as I said, the economy probably has bottomed out, or is in the process of bottoming out and that is reflected in the numbers that we have seen, be it the IIP or GDP growth rates or in terms of the margin improvements that are expected going forward.
So one has to have cyclical exposure in the portfolio and one should also have allocation to good defensive companies in the portfolio, because when the tide turns, these will be the companies which will be in the best position to assume growth, given their financials are pretty good.
Having said that, one has to be cognisant about the earnings growth that is going to be there and the valuations that some of these companies are quoting. From that perspective, one could be underweight on the consumer staples among the defensives and one could also look at adding cyclicals.
ET Now: Finally, the mutual fund industry is getting inflows and the AMFI data seems to be indicating that June was a big month for the mutual fund industry. Do you think flows are back and are they here to stay?
Swati Kulkarni: Yes, flows are definitely back and typically Indian investors get attracted to the returns. One good thing about the earnings growth story is that we are coming out of a low earnings scenario over the last two years.
So we will probably be shifting may not be in FY15, but surely from FY16 onwards, to a much better earnings growth trajectory of 15%. As more and more investors give importance to these numbers and the profitability behind the indices, I think equity flows are here to stay and investors would look at equity more constructively than they have done it in past.
ET Now: In this calendar year, the Nifty already has appreciated by 20%. That is a sizeable move for any index. Do you think the bulk of the Nifty appreciation for this calendar year is over?
Swati Kulkarni: That is possible. The Nifty might remain sideways before it gets a clue of the FY16 or FY17 earnings growth, but clearly, it is the market sentiment that prevails and the liquidity that is coming into the market which prevails in the short run.
So taking a call just because the Nifty has made a move, without giving any importance to the underlying profitability or improving trends would be not suggested at this point of time. So from that perspective, one has to look beyond this calendar year and stay invested in equity markets from at least a three years’ perspective.
That is what I would suggest at this point of time. The markets might have these temporary blips. Just see the movements that are happening post-Budget. It is not a clear trend and whenever corrections are there, investors have been utilising these to take exposure to the equity markets. So clearly, the corrections could be short-lived and we could have a much better three-year horizon going ahead.
ET Now: There has been a good recovery in the market after a damaging last week. Do you think that a larger move for the market is in place, or is this just a temporary blip up?
Swati Kulkarni: It is difficult as always to comment on a single-day movement as such, but we are constructive on the market from a long-term perspective. A lot of things are happening in terms of decision making on the ground.
Moreover the cyclical recovery that is there is driving the market. The other thing is that global liquidity is quite benign and that is also resulting into a worldwide upward movement in the equity markets as such. So we are in for good times and that is what the market is reflecting, notwithstanding the volatility on a day-to-day basis.
ET Now: Do you think that the budget disappointment or the budget event adjustment is over now?
Swati Kulkarni: We give a lot of importance to the Budget as an event. However, if you see the way things have happened in the last two years or so, there have been important announcements outside the Budget. So it is unfair to just look at one particular piece of document and comment on the overall policy environment in the country.
Also, fiscal constraints that we are going to have because of the last two years’ slow growth would also prevail on the budget-related provisions as such.
The market is recognising these and it will really look for clues as to how the key policy decisions, reforms or the impediments which are affecting the overall investment environment are taken care of during the course of the year. That is what will be required to take us to a higher growth trajectory and that is what the market will focus on.
ET Now: How should one sectorally allocate oneself between cyclicals and defensives because again, there is a whole lot of shuffle happening there?
Swati Kulkarni: Clearly, the preference for cyclicals should be there in the portfolio because, as I said, the economy probably has bottomed out, or is in the process of bottoming out and that is reflected in the numbers that we have seen, be it the IIP or GDP growth rates or in terms of the margin improvements that are expected going forward.
So one has to have cyclical exposure in the portfolio and one should also have allocation to good defensive companies in the portfolio, because when the tide turns, these will be the companies which will be in the best position to assume growth, given their financials are pretty good.
Having said that, one has to be cognisant about the earnings growth that is going to be there and the valuations that some of these companies are quoting. From that perspective, one could be underweight on the consumer staples among the defensives and one could also look at adding cyclicals.
Swati Kulkarni: Yes, flows are definitely back and typically Indian investors get attracted to the returns. One good thing about the earnings growth story is that we are coming out of a low earnings scenario over the last two years.
So we will probably be shifting may not be in FY15, but surely from FY16 onwards, to a much better earnings growth trajectory of 15%. As more and more investors give importance to these numbers and the profitability behind the indices, I think equity flows are here to stay and investors would look at equity more constructively than they have done it in past.
ET Now: In this calendar year, the Nifty already has appreciated by 20%. That is a sizeable move for any index. Do you think the bulk of the Nifty appreciation for this calendar year is over?
Swati Kulkarni: That is possible. The Nifty might remain sideways before it gets a clue of the FY16 or FY17 earnings growth, but clearly, it is the market sentiment that prevails and the liquidity that is coming into the market which prevails in the short run.
So taking a call just because the Nifty has made a move, without giving any importance to the underlying profitability or improving trends would be not suggested at this point of time. So from that perspective, one has to look beyond this calendar year and stay invested in equity markets from at least a three years’ perspective.
That is what I would suggest at this point of time. The markets might have these temporary blips. Just see the movements that are happening post-Budget. It is not a clear trend and whenever corrections are there, investors have been utilising these to take exposure to the equity markets. So clearly, the corrections could be short-lived and we could have a much better three-year horizon going ahead.
Get Unlimited Access to The Economic Times
